Could blockchain transform transport?
Image credit: Maersk
Blockchain technology has potential to save millions of dollars for the world’s transport and logistics companies.
As a means of creating secure, tamper-proof records in real time, blockchain technology is attracting the attention of the transport and logistics industry. The ability for every member of a supply chain to associate the correct documentation with goods and track their progress from supplier to customer should not only cut costs and reduce errors but also bring transparency to transactions for all parties. People at the forefront of these developments say the arrival of blockchain is likely to be as transformative for the freight industry as the advent of containerisation was in the 1960s.
The world’s leading consortium for testing blockchain technology is the US-based Blockchain in Transport Alliance (BiTA), with more than 230 members, bringing together freight and logistics operators with other stakeholders in transport, finance and technology.
In Europe, Danish shipping container line Maersk and German-owned parcel delivery service Deutsche Post DHL Group are testing blockchain in ‘real life’ operations. Likewise, PLM, a provider of refrigerated food delivery services has set up a blockchain supply chain delivery service and GE Transportation is prototyping a blockchain service for better managing and monitoring the transportation technology it supplies to its customers worldwide.
This article takes a look at blockchain technology, its applications, benefits and obstacles to adoption in the transport sector.
To understand the applications and implementation details of blockchain, it is necessary to understand its fundamental principles, architecture, types and components. This level of detail is currently being explored by pioneers, but a skeletal outline for non-practitioners can be seen in the diagrams later in this article.
Oxford Internet Institute defines blockchain a shared digital ledger including a list of connected blocks stored on a decentralised distributed network that is secured through cryptography. Each block contains encrypted information and hashed pointers to a previous block, making it difficult to alter without changing the entire chain and the replicas within the peer network. This means the blocks of information are authenticated by peers on the network, providing trustworthiness and thus preventing malicious activity and policy violations. Cryptography and membership functions provide easy data sharing between parties without privacy breach and vulnerability of tampering of records. All confirmed transactions are time-stamped to provide full record provenance.
Maersk press officer Lejla Charif sums up the potential transformative power of blockchain technology thus: “It can be used to trace the exact provenance of goods, from its point of origin to its point of sale. That can be applied not only to a digital currency, but also to a product ... a diamond, an avocado, a photograph, really anything.”
Around the world, various companies are jointly trialling blockchain and assessing its possible benefits for their operations. One international consortium includes Belgium’s largest brewer, Anheuser-Busch (AB) InBev, Irish professional services company Accenture, US container shipping line APL, Swiss logistics company Kuehne + Nagel and an undisclosed European customs agency.
Each of these organisations has been testing the technology for their respective functional roles in the delivery chain. For instance, AB InBev represents an exporter, APL a shipping organisation and Kuehne + Nagel provided direction on the requirements for a freight forwarder. To date, the members claim to have eliminated the need for much of the printed documentation between the exporter and final customer. This paperwork is costly in time and money since a typical international shipment of automotive, retail or consumer goods usually requires over 20 different documents to transport the goods from exporter to importer.
Such document-heavy bureaucratic processes limit transparency between all participants and cause delays in the financial settlement of goods. Martin Kolbe, chief Information Officer of Kuehne + Nagel International, observes: “Blockchain is one of the most promising technologies in logistics. It has the potential to digitalise many of today’s paper-based processes and overcome the multitude of different interfaces.”
The group has also found that using blockchain technology can reduce data entry by up to a staggering 80 per cent and streamline the requisite checks of cargo, thereby reducing costs and the risk of potential penalties at custom points. Adriana Diener-Veinott, who leads Accenture’s freight and logistics industry practice, notes the holistic benefits of blockchain: “It gives companies an opportunity to save time and money while improving their service to customers.”
This administrative streamlining of the separate, but connected transactions in the distribution chain is particularly valuable for perishable goods such as food or flowers, with all parties able to track the progress of consignments.
Blockchain could revolutionise the transportation, logistics and freight industries in the not-too-distant future. Improving the overall visibility of supply chains, identifying the provenance of goods and tracking their movement as well as providing valid information on handling conditions are just some of the obvious benefits. But it is in the detail that the real benefits become apparent.
Because blockchain systems use a chain of cryptographically protected records to reveal details of transactions to all the chain’s participants, it makes for better record-keeping, improves capacity and asset monitoring, provides evidence for dispute resolution, helps in fraud detection and ensures the application of relevant regulations. In time blockchain technology could facilitate increased automation in the form of smart contracts (programmes that respond to real-world events) to enforce the rules controlling the transfer of currency or assets under specific conditions.
To sum up, Muru Murugappan, vice president of technology services at the major North American freight railway operator BNSF, acknowledges that: “Blockchain technology has the potential to change several aspects of the transportation industry.”
For example, blockchain could be used to record a ship, truck or train’s maintenance and performance record and inform maintenance schedules to satisfy the regulatory authorities. The record could show the maintenance history of servicing including dates, what was done, parts that were used and even going so far as the details of the service engineer including experience and training record. Beyond providing valuable operational information this record could be invaluable should owners wish to sell. The blockchain provides a complete and comprehensive record for potential buyers. As BiTA CEO Craig Fuller points out, in this circumstance: “I don’t have to trust the other party, the seller, or an intermediary. The data is flawless.”
The efficient use of capacity and assets is crucial not only for the business but also more widely, since it could help reduce traffic congestion and pollution. Employing the internet of things and blockchain technology could facilitate a leap in efficiency. For example, IoT sensors on a truck, tanker or rail vehicle could monitor real-time use of capacity and the data could be sent to a blockchain-based system, eventually allowing billing for the actual space occupied by a cargo in real time through a smart contract.
Virtual data from trains could also be used to improve services to both passengers and freight customers. For instance, train operators could collect data from passenger’s mobile phones to better plan the supply of trains or to ease congestion during peak times by incentivising customers to delay their journey.
In Europe, specialised rail rolling stock leasing companies already exist, including Railpool, GE Rail services and Business Alliance, but blockchain could help establish ‘trailer pools’ notes Craig Fuller, in which: “the trailers will be owned by a third-party entity and shared collectively with fleets.” In the future, this would place third-party logistics companies on an even footing with truck owners. Moreover, usage of space in a fleet of trailers or freight wagons can be charged by occupation of space and duration. This means, according to Fuller, that: “You can tie a contract to it and settle it in real time so there is no collection process.”
Obtaining accurate and on-time payments can be difficult at the best of times but the incidence of mistakes on invoices delays payments even further. Blockchain could help logistics companies eliminate human error since each transaction could be handled according to the smart contract terms and the contract would be executed and the transaction cleared at the same time, thus eliminating the current back-and-forth exchanges between the parties as they hash out the finer points of their agreement. Moreover, since all the facts of the transaction are viewable by all parties fewer disputes are likely to occur.
Blockchain could prove invaluable in detection of counterfeit goods, invoices and odometer fraud since any attempt to alter the record in a blockchain would alter the coding and be noticed. Adam Robinson of logistics technology management firm Cersasis points out that blockchain “will allow companies to recognise the fraud and who initiated the change almost immediately.”
Dieter Sellner, senior project manager of DB Schenker, the logistics and supply chain arm of German rail operator Deutsche Bahn, agrees. He says: “We have been focusing on preventing fraud and to reduce the risk of counterfeiting, which is one of the major use-cases where blockchain technology provides a potential for huge benefits.”
‘Companies need to become familiar with applying blockchain technology to the right use-cases - and that takes trial and error.
Customs clearance could be made cheaper and faster with blockchain technology too. Marine Transport International estimates that blockchain could save $300 in customs clearance costs for each consignment or container. As an ultra-large container ship like the Madrid Maersk can carry up to 18,000 containers, blockchain could potentially save $5.4m in labour and processing costs.
Rotterdam, Europe’s largest port, is part of a logistics consortium using blockchain to share knowledge of logistics in a trial lasting two years. At sea, Damco, Maersk’s supply chain solutions company, has shipped flowers from Kenya, oranges from California, and pineapples from Colombia to Rotterdam, with the consignment’s transactions logged via blockchain.
Blockchain can simplify customs clearance but could it also help resolve the Northern Ireland border issues raised by Brexit? Theoretically, it could help in the current fight against illegal cross-border movement of tobacco, alcohol and fuel. However, technical, operational and political considerations have still to be solved if blockchain is to contribute in this case.
Despite the great interest being shown by the transport sector in applying blockchain, there remain many hurdles to universal adoption including, set-up costs, integration issues, energy consumption, privacy, public perception and lack of standards or standardisation.
Given that blockchain is in its pioneering stage, there are no industry-wide standards yet; nor are there any off-the shelf blockchain technologies being marketed today. Currently, would-be adopters have to buy expensive bespoke technology from third-party blockchain tech suppliers. Once developed, a bespoke solution for one party could prove inadequate or need modification to suit another member with a different role in the chain. As this is still in the experimental stage for the blockchain suppliers and their customers, the technology is being tested mainly by large firms. For small and medium-sized businesses, the risk and cost of adoption are at present too high.
To employ blockchain is organisationally challenging since it requires the firm to either overhaul its existing systems or find a way to integrate it into those systems. Organisational culture is a commonplace obstacle to adopting a change in technology or practices, which involve considerable planning, time and money. Managing the change can also be problematical.
The prospect of bigger power bills could prove a deterrent to many businesses operating in an age of rising prices and pressure to cut emissions. Blockchain is highly energy-intensive. The energy required by a bank of computers to verify and process transactions and to secure the network is considerable, quite apart from the energy that goes towards keeping the processing centre cool at all times.
HydroMiner, a cryptocurrency miner based in the Austrian Alps near the city of Linz, draws 600kW from nearby hydro plants to service its operations, which it markets as eco-friendly compared with rival Chinese miners whose processors are powered by fossil-fuel electricity.
For most businesses that could benefit, awareness let alone knowledge of blockchain is hazy at best. Unfamiliarity is a key obstacle to adoption. It will take time for the usefulness of blockchain to be clearly demonstrated, educate and spark real interest in making the change-over. As Sellner predicts: “Companies need to become familiar with applying blockchain technology to the right use-cases – and that takes trial and error to some extent. Then the number of successful projects will increase and the exuberance of this new technology will get to a lower and healthier level.”
For businesses, the very transparency brought to transactions by this technology is of concern for the all-too-many who feel the need to protect commercial secrets. Before such organisations would consider taking part, a way has to be found to protect or restrict sensitive company information. Work is under way to overcome this obstacle as Sellner explains: “DB has been attempting to solve the issue of restricted data, by only sending the relevant tracking information on a need-to-know basis, meaning not everybody could see everything, but only data he needs to know.”
The need to create and agree on joint global standards for the application of this technology is vital for ensuring the maximum use of blockchain and its benefits not only in transportation and logistics but also for international trade. But to achieve the gains that blockchain promises it is necessary for the tech industry to “come together to align around a set of standards” says Murugappan of rail firm BNSF, which is a member of the Blockchain in Transport Alliance. International standards of terminology, development, deployment and security are a necessary precursor to take this technology beyond the trials being run by a number of consortia and large companies. The absence of standards raises innovating companies’ risks and costs.
For the majority of companies, more trialling and prototyping will need to be conducted and conclusive evidence of the advantages of blockchain will need to be demonstrated before they take the plunge. To this end, “DB is in the midst of identifying use-cases where blockchain adds value to our processes and to our partner and customer ecosystem,” states Sellner.
Likewise Maersk, working in partnership with IBM, has plans to bring to market a single digital hub where participants can store, interact and manage supply chain data at any given time, subject to regulatory clearance.
As development work progresses the functions of the blockchain platform could be expanded to include a wide range of digital services and solutions, supporting efficient and safe trade. Blockchain has the potential to revolutionise not only the transport and logistics sector but businesses and trade around the world – to the benefit of customers. For it to fulfil its promise, the technology will need to be standardised and the benefits have to be clearly demonstrated and widely understood.